Glencore sees healthy EM growth; outlook bullish

AlexMacDonald

LONDON (MarketWatch) -- Commodities titan Glencore International PLC (GLEN.LN) said Monday it expects to see healthy growth within the emerging markets in the short-term, after disclosing higher 2011 earnings despite cotton trading losses that weighed on its marketing activities.

The Baar, Switzerland-based group reaffirmed that all its mining projects were developing on time and within budget as it continues to prepare for its planned merger with 34%-held diversified mining affiliate Xstrata PLC (XTA.LN). It also said it sees no change to the bullish long-term commodities outlook.

"Thus far in 2012, market conditions have improved and the year has started well across all segments of our business," said chief executive Ivan Glasenberg. "Emerging market urbanization will continue to increase commodity intensity per capita as the demand for goods and products that industrialised societies take for granted increases," he added.

Glencore said net profit attributable to shareholders more than trebled to $4.05 billion in 2011 from $1.29 billion in 2010. Revenues increased 28% to $186.2 billion while earnings before interest and taxes, or EBIT, adjusted for exceptional items rose 2% to $5.4 billion.

Adjusted EBIT from industrial activities, including mining, refining and smelting, rose 18% to $3.5 billion due to generally stronger commodity prices and increased production from its coal, copper and gold mines as well as the start up of the Aseng oil field in Western Africa, ahead of schedule and budget.

But unusually volatile cotton prices last year played havoc with earnings in Glencore's marketing division, where adjusted EBIT fell 18% to $1.9 billion. Glencore said the volatility made hedging ineffective as well as difficult for cotton customers and suppliers to honor contracts.

Excluding the impact of cotton, adjusted EBIT would have been up 10% on the year in 2011, Glencore said.

Glencore's shares have fallen 21% since its initial public offering price of 530 pence a share in May last year as concerns about the global economy dented the valuation of mining equities in general.

Glencore listed its shares in May on London and Hong Kong to much fanfare in what was considered a stepping stone to a tie-up with globally diversified miner Xstrata, a miner with which it has historically close commercial ties.

The two companies have proposed a merger of equals that would create a commodities juggernaut with a market capitalization of more than $80 billion and mining and trading assets in oil, grains, base metals, precious metals, shipping, and bulk commodities such as coal.

Glencore and Xstrata have agreed to a deal in which Glencore would give Xstrata shareholders 2.8 Glencore shares for every Xstrata share. Shareholders representing close to 5% of Xstrata's share capital however believe that the current ratio isn't sufficient. Equity analysts expect Glencore to raise its offer to 3.0, based on a Dow Jones poll of seven analysts.

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